Measuring & Analyzing Sales

Sales are the lifeblood of retail.  Perhaps that is why we have so many different ways to measure, report and analyze sales.  I thought I would use today’s post to do a brief rundown of some of the different types of sales measurements that are used by retailers.  (Please note that because I am a marketer – I am not looking at these from the perspective of an accountant, rather I’m coming at them from the perspective of a merchant or a buyer.)

• Gross sales– all sales on all merchandise and services during the given time period.  This one is the grand-daddy of all sales measures, since it is the only one to include everything.  Gross sales is an important measure because of its ease of comparability across different retailers.
Formula = Average price * units sold
• Net sales– gross sales less returns and allowances.
Formula = Gross sales – (returns + allowances)
• Overall sales– a retailer’s total sales.  Typically reported in percentage form.  Overall sales are used to measure a retailer’s growth.
Formula = (TY Sales – LY Sales)/LY Sales  (Note:  for overall sales, include all sales from all stores.)
• Comparable sales– also known as same store sales, are a measure of sales for all stores that have been open at least one year.
Formula = (TY Sales – LY Sales)/LY Sales  (Note:  only include sales from stores open at least 12 months.)
• Sales per square foot– average amount of sales generated per square foot of selling space in the retailer’s stores.  Sales per square foot is a popular measurement for determining how efficiently the retailer is using their sales space.  According to RetailSails.com, Apple has the highest sales per square foot of any U.S. retailer at \$6,123.  If you would like more information concerning U.S. retailers performance in this area, check out RetailSails.com’s chart for all retailers or their listing for the grocery industry(Update 9/19:  RetailSails.com’s website is temporarily down.  Some of the same information can be found in an April post by ASYMCO.)
Formula = Sales/Total square ft. selling space
• Stock-sales ratio– the ratio between the amount of inventory (stock) you have available and the amount you are making in sales.  This measurement helps retailers determine if they are carrying too much or too little inventory.  If you would like to learn more about how to interpret this ratio, I recommend Rick Segal’s analysis at The Retailer’s Advantage.  And, if you would like some ratios to compare your numbers to, the U.S. Census releases reports for U.S. manufacturing and sales inventories/sales ratios every month.  (http://www.census.gov/mtis/)
Formula = Beginning of month inventory/Sales for the month
• Online sales ratio – the ratio between a retailer’s online sales and their total sales.  The online sales ratio was developed by Investopedia.  It is further explained in their article “Online Sales Ratio Key to Retail Success”.
Formula = Online sales/total sales
• Sales per transaction – this ratio can be calculated in either units or dollars.  Many retailers choose to calculate and track both.
Formula = Sales/# of transactions

There are many more sales measurements than those listed.  For example, many retailers calculate sales per linear foot of shelf space, sales per department, sales per hour, or even sales per labor hour.  All are good measurements for determining base efficiency levels and the health of a retailer’s sales.  If you have a favorite that I haven’t mentioned, please let me know about it.